8 minute read | August.22.2023
Delaware recently joined nine states in approving changes to the Uniform Commercial Code (UCC) involving digital assets. Another 15 states and Washington, D.C. are considering the changes.
The Uniform Law Commission urged states in 2022 to change commercial law governing the transfer of these digital assets. The Commission recommended changes that govern transfers (whether as a sale or as a financing) of digital assets, including cryptocurrency, digital tokens and non-fungible tokens.
The proposed changes also include the enactment of a new chapter (Chapter 12) to the UCC and conforming changes to other UCC chapters to address the perfection, priority and choice of law rules applicable to virtual currency (defined as electronic money) and other forms of digital assets.
Adopting Chapter 12 will reduce risks among claimants to digital assets a purchaser acquires, whether as a buyer or secured lender. It also will specify the rights in the assets.
On August 18, 2023, Delaware became the latest state to enact the 2022 Amendments, joining Alabama, Colorado, Hawaii, Indiana, Nevada, New Hampshire, New Mexico, North Dakota and Washington. Legislators in New York, California, the District of Columbia and 13 other states have introduced bills to enact the 2022 Amendments.
Article 12 introduces a few new terms. Here are four terms you’re likely to hear:
Many types of digital assets will be affected by the 2022 Amendments. These include the following:
With their enactment, the 2022 Amendments are now effective in many states, including Delaware. The effective date of the 2022 Amendments varies by state.
Control is the functional equivalent of “possession” of the digital asset. A purchaser/secured party has control of the digital asset/controllable electronic record if that party:
Alternatively, a purchaser/secured party will have control of the digital wallet (also referred to as the “securities account” in which the digital asset is held) if, among other things:
Here are six key issues and related questions that purchasers, lenders and investors with interests in digital assets may want to consider: